Question

Problem 7-12
Comprehensive Ratio Calculations

The Kretovich Company had a quick ratio of 1.5, a current ratio of 2.5, a days sales outstanding of 33.0 days (based on a 365-day year), total current assets of $760,000, and cash and marketable securities of $115,000. What were Kretovich's annual sales? Round your answer to the nearest cent. Do not round intermediate calculations.
$  

Answer 1

The amount is computed as follows:

Current liabilities is computed as follows:

= Total current Assets / current ratio

= $ 760,000 / 2.5

= $ 304,000

Quick ratio = (Cash and marketable securities + Accounts receivable) / Current liabilities

1.5 = ($ 115,000 + Accounts receivable) / $ 304,000

Accounts receivable = $ 341,000

So, the sales will be as follows:

= Accounts receivable x 365 days / days sales outstanding

= $ 341,000 x 365 / 33

= $ 3,771,666.67 Approximately

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